US authorities are considering bringing action against Rupert Murdoch's News Corp, the Sun's parent company, under the Foreign Corrupt Practices Act (FCPA), legislation that allows officials to go after US firms alleged to have bribed foreign officials. If found guilty, News Corp faces a possible court case and hundreds of millions in fines.
This week, Metropolitan police deputy assistant commissioner Sue Akers told the Leveson inquiry, which is investigating the state of the British press following the phone-hacking scandal, that there was a"culture of illegal payments" at the Sun to a "network of corrupted officials".
The Sun and its former sister paper, the News of the World, are owned by News International, a wholly owned subsidiary of News Corp, the US media gaint that owns Fox, the Wall Street Journal and a controlling stake in Sky, among other assets.
"This is obviously a very significant development with regards to the likelihood of a US prosecution," said Mark MacDougall, partner in the Washington office of the law firm Akin Gump Strauss Hauer & Feld and a former federal prosecutor. "If the British authorities are articulating a pattern, a defined scheme, to bribe officials, that is a very big deal."
The latest allegations significantly increase the likelihood of an FCPA action, said Mike Koehler, professor of business law at Butler University and author of the FCPA Professor blog.
"Last July, when we first started talking about this, there was one newspaper, the News of the World, and one category of foreign official, the police. Now we have another newspaper and a much broader category of foreign officials," said Koehler.
"The evidence seems to suggest that there was a recognition that these payments may have been illegal and the notion that there were attempts to disguise the nature of these payments," said Koehler. These elements would fall under the remit of the FCPA.
The original investigation centered on payment to police officers, and there had been some argument that the police did not fit the FCPA's definition of "foreign government officials".
Tom Fox, a Houston-based lawyer who specialises in FCPA cases and anti-corruption law, said Akers's allegations that payments had been made to "police, military, government, prison and health and others" had destroyed that argument.
"Speaking of a culture of corruption is really bad," said Fox. "There are two main types of FCPA case. In the first, a company has policies in place but fails to detect corruption. The second is far worse. And that's when there is a programme in place and you ignore it."
Koehler said any prosecution was most likely under the "books and records and internal control provisions" of the FCPA. "If a company is misrepresenting payments or has insufficient internal controls to stop illegal payments before they occur, [FCPA officials] will take action," he said.
In Akers's testimony, she claimed there were systems in place at the Sun to hide the identity of sources, and evidence to suggest those making the payments realised what they were doing was wrong.
FCPA experts said the mounting evidence was also likely to put paid to arguments that the payments were too small and localised an issue to trigger a full FCPA case.
In several recent cases brought by US financial watchdog the Securities and Exchange Commission (SEC), action was taken against foreign subsidiaries because their accounts were consolidated with a US parent company.
In February Smith & Nephew, a UK-based medical supplies company, paid $22m to settle charges that it had made "illicit payments to public doctors employed by government hospitals or agencies in Greece". S&N was hit by an FCPA action because it consolidated its accounts with its Memphis-based US subsidiary.
Last April, New York-based Comverse Technology settled charges that it had violated the FCPA's books and records and internal controls provisions for payments made thorough an Israeli subsidiary.
Koehler said the majority of FCPA cases were now being brought on books and record-keeping, as they were easier to prove. "The allegation that the subsidiaries' problematic books and records were consolidated with the parent company issuer's books and records for purposes of financial reporting is made in nearly every SEC FCPA enforcement action," he said.
FCPA experts said investigators would be looking for any similar evidence of payments that could violate FCPA rules in other News Corp markets like Australia.
MacDougall said the investigations could also have ramifications for News Corp in the US. "If any of this decision-making was made in the US, or if information flowed into the US outlets then that significantly increases exposure for those involved," he said.
MacDougall said that there were a variety of statutes under US law that prosecutors could consider should they find direct US involvement in the case. "US prosecutors powers are very broad, and necessarily so," he said.
But no case is likely to be brought against the firm soon. Koehler said typically it takes two to four years before the US authorities feel they have thoroughly exhausted an FCPA inquiry and decided whether or not to press charges.